Since the Great Recession of 2008, the auto industry has been one of the keys in propelling our current economic expansion. In the current year, there have been 18.1 million vehicles sold, and that is well above 15 million vehicles, which is what Goldman Sachs calls the Normalized Demand. Although auto sales have been soaring above the Normalized Demand for a few years now, things seem to be unraveling fast in the industry, and that could mean trouble for the overall economy. We have appeared to hit a peak in auto sales in November of 2015, and downtrending auto sales usually occur during times of recession.
To deal with the slowing demand for
automobiles, GM recently announced that it would layoff 1,300 workers at
its plant in Detroit. They also announced that the would be temporarily
halting production at 5 manufacturing plants around the country to
dissipate the highest inventory levels they have had in 8 years.
The massive build-up in inventory is a sign that they are selling a
lot less cars than they anticipated. The fact that they haven’t had
this much inventory since the Great Recession is a warning sign that the
industry is signaling another recession.
The automobile industry’s success is
heavily tied to the overall economy’s success and vice versa. In the
60’s and 70’s troubles in the auto industry were a much clearer sign of
an economic downturn because of how massive they were. Although they do
not make up as large of a portion of our economy as they once did, the
auto industry is still a good indicator of economic health. The recent
slowdown in the auto industry, along with many other factors, is
signaling a recession soon. Be prepared and stay tuned for more on the
coming economic downturn.